Managing Challenges of Energy & Power Sector (Part 1)

Saleque Sufi did a research on managing the challenges of energy and power sector. This is the first part of his findings from this research.

Sustainable longer-term energy security is a prerequisite for achieving economic development for realizing national visions of Bangladesh. Nation has at targets for achieving mid income country status by 2021 and developed country status by 2041. Visions in the power sector are ensuring quality power supply to all at affordable cost by 2021. On December 8, 2016, Government celebrated the achievement of 15,000 MW installed capacity with fireworks in Dhaka. The installed capacity of grid connected power is 13,000 MW including 600 MW import from India. Dedicated captive power generation capacity is 2000 MW. PSMP 2015 (Power System Master Plan) has been formulated and is now under approval process.This would replace PSMP 2010. The government has adopted various power generation mega projects mostly based on imported fuel ( coal and LNG ) for achieving target generation for achieving power sector visions. There are many issues and challenges.This write up would discuss those. The major challenges are adopting a balanced fuel mix for sustainable supply at an affordable cost, developing competent manpower for planning, managing implementation and operating infrastructure facilities.

2.0 PSMP 2015 & PSMP 2010

2.1 Fuel Mix

Fuel

% contribution PSMP 2010

% contribution PSMP 2016

Domestic Coal

29.07%

1%

Imported Coal

21.71%

34%

Gas /LNG

22.87%

35%

Nuclear and Power Import

20.00%

25%

Liquid Fuel

6,35%

Fuel

Source: Energy & Power Magazine

We find from above that one of the major departures from PSMP 2010 is drastically reducing dependence on local coal contribution from 29.07% to 1%. On the contrary the contribution of imported coal has been planned to increase from 21.71% to 34%. The contribution of gas &LNG has also been planned to increase from 22.87% to 35%. The draft PSMP 2015 has a demand estimate of 52,000 MW in 2041 of which 46,000 -48000 MW is planned to be generated from imported primary fuel or power import.

Government could not finalize coal policy and adopt strategy for exploiting about 4 billion tons estimated own coal reserve. If PSMP 2015 is approved with fuel mix as above it will mean that local coal will not be exploited or won’t be used for power generation. The draft PSMP 2015 also indicate that if local coal is not used power generation would become about 92% depended on imported fuel (coal and natural gas). Whether or not almost exclusive reliance on imported fuel would lead to sustainable supply of power to all at affordable price would be a major challenge. Fuel import would require entering into a new paradigm.

2.1.1 Fuel Mix in January 2017

Based On De-rated Capacity Of Grid Connected Power Plants.

Fuel

Capacity (MW)

Total (%)

Coal

200 MW

1.59%

Gas

7900 MW

62.96%

HFO

2635MW

21.00%

HSD

982MW

7.83%

Hydro

230MW

1.83%

Imported

600MW

4.78%

Total

12,547MW

100%

Source PDB Website

Since the exploration and exploitation of local fuel (Coal and Gas) failed to match the fuel mix planned in 2010 for liquid fuel it remained 28.83% as against 6.35%. Price of crude oil derivatives remaining low in world market did not create much discomfort in the recent past in meeting financial obligations. But again present trend of rising oil price has already started ringing alarm. Generation of power from liquid fuel must be carefully reviewed.

2.2 Fuel Supply Challenges:

For managing present and emerging challenges of fuel supply government must review suggested fuel mix of PSMP 2015 and adopt a balanced fuel mix of domestic and imported fuel. This would require expediting exploration for petroleum at offshore and onshore and exploit own coal resource on priority basis.

2.2.1 Natural Gas & LNG:

Present production capacity of Natural Gas is 2750MMCFD and Government information states of 600 MMCFD deficit. All gas fields have reached production plateau and are on the verge of depletion. Experts observed that if no new gas fields are discovered soon remaining reserve at the present rate of use would deplete by 2031. Government is advancing with plans for importing 3000 MMCFD equivalent LNG by 2030 through setting up FSRU and land based LNG terminals. Government has plans for expediting Petroleum explorations. Let us discuss the present status and challenges of Gas Exploration and LNG import.

2.2.1.1 BAPEX Mega Project:

Capacity handicapped BAPEX has been tasked with a mega project of drilling 108 gas wells including 53 exploration wells in onshore areas by 2021. Given the capacity of BAPEX and reviewing the exploration history of Bengal delta over the past 100 years this is an unattainable target.

It is suggested to review the project engaging local experts and international consultant. BAPEX may be tasked to drill maxim of 25-30 wells including 10 exploration wells. The remaining works may be leased out to IOCs through transparent block bidding. Alternately strategic partners (reputed International Oil Companies or Local Major Energy Companies) may be engaged for BAPEX through open bidding for implementing the project.

Chittagong area is suffering from gas drought for almost the past 10 years. Further exploration of four potential petroleum blocks in the greater Chittagong area could let to discovery of new petroleum resources by now if Petroleum initiative for engaging Joint venture partner was not stuck in beauracartic tangle. BAPEX does not have capacity for exploration in tight structures .They will definitely need technological and resource support. It is expected that at least 100 MMCFD gas bay be produced from these structures in 2-3 years if works can start soon.

2.2.2 Off Shore Exploration:

2.2.2. 1 Shallow Water Blocks: Australian Company SANTOS and Indian Company ONGC are set to commence exploration in their allotted offshore blocks soon. In case of commercial discovery some gas may be available to national gas grid in 3-4 years.

2.2.2.2 Deep Water Exploration:

Inordinate delay for engaging multi-client survey contractor for data acquisition in the deep water has created uncertainty in deep water exploration. The approval must be given soon and survey must start without fail in the next dry season. Simultaneously the next round of offshore block bidding must start by June 2017 through updating Model PSC 2012. Any major IOCs planning to invest billions of dollars in deep water explorations would definitely carry out own investigations without waiting for Petrobangla data and information. EMRD and Petrobangla can organize a road show on Draft Model PSC in Dhaka inviting interested IOCs , representative of donor agencies , investment banks and local interested investors .Let all be heard about their perceived fiscal and financial incentives in PSC for risking billion dollar investment in deep water exploration. Tax, Insurance, gas price, export provisions may come up for discussions. Let us all be rational and realistic. If countries like Myanmar, Vietnam, India can be benefitted from PSC bidding cannot understand why Bangladesh cannot. Bangladesh offshore blocks extends up to 200 KM from the shore and 2000 meter deep. If a major gas resource is discovered in the farthest block how that will be developed? Do we have skills of even managing implementation of offshore infrastructures including subsea pipelines? Floating LNG terminal or pipeline transportation would be discussion issue at that time.

If Bangladesh can go for offshore bidding by the middle of 2017 and engage IOCs by early 2018 by 2025 some major gas find can be monetised. But offshore gas price would be competitive with imported LNG.

2.2.3 Chevron Production Facility Take Over:

US IOC Chevron is set to reassign their PSC to any interested company as per its business strategy. Prime Minister of Bangladesh has already approved a proposal of EMRD & Petrobangla for taking over the operation of Jalalabad, Maulavibazar and Bibiyana gas fields operation. These fields especially Bibiyana and Jalalabad are back bones of gas system security of supply .But these fields have also reached production plateau. Chevron enjoyed all facilities of bringing in new investment as and when the cost recovery of earlier investment was about to be done. The controversial Muchai Compressor Station Project of GTCL implementation and GTCL constructing very expensive Bibiyana –Dhanua pipeline rationale would be seriously questioned if Bibiyana and Jalalabad deplete soon.

But the real challenge that Petrobangla would have to confront is professionally assessing the value of resources left and outstanding financial obligations of Chevron. Petrobangla has to engage internationally accredited Petroleum Reservoir experts for assessing Chevron resources in three gas fields. Meantime a through inventory of movable and immovable assets must be carried out. The local professionals must be retained with their pay and benefits protected.

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